SEBI eases norms for domestic funds managing offshore money

New Delhi: Making it easier for domestic funds to manage offshore pooled assets, SEBI on Sunday relaxed its norms by dropping the '20-25 rule', which required a minimum of 20 investors and a cap of 25 percent on investment by an individual, for funds from low-risk foreign investors.

"This will enable local fund managers to manage offshore funds effectively and also garner more offshore business in the future," SEBI said after its board meeting here.

As per the existing norms, a fund manager who is managing a domestic scheme, is allowed to manage an offshore fund subject to three specific conditions.

The first requires the investment objective and asset allocation of the domestic scheme and of the offshore fund to be the same.

The second condition requires at least 70 per cent of the portfolio to be replicated across both the domestic scheme and the offshore fund.

The third condition, which was being considered as the most stringent by the industry, requires that the offshore fund should be broad-based with at least 20 investors with no single investor holding more than 25 per cent of the fund corpus.

Otherwise, a separate fund manager is required to be appointed for managing an offshore fund.

SEBI said on Sunday that its board on Sunday decided to "remove the above restrictions for managing offshore funds, belonging to Category I FPIs (Foreign Portfolio Investors) and appropriately regulated broad-based Category II FPIs, by local fund managers who is managing a domestic scheme."

SEBI has classified FPIs into three categories, with the first two broadly being low-risk foreign institutions that include sovereign wealth funds, pension funds, banks, mutual funds, insurers, multi-lateral institutions and well-regulated foreign entities including portfolio managers.

Earlier in January, Sebi had floated a a discussion paper to amend its Mutual Fund Regulations with regard to managing and advising of offshore pooled funds by local fund managers.

The market regulator had sought comments from public till February 2 on those proposals.

The relaxation in the norms have been made keeping in view the challenges faced by the local fund managers in managing offshore pooled assets and the introduction of FPI Regulations which has rationalized the investment routes and monitoring of foreign portfolio investments and also streamlined categories of overseas investors.

SEBI said that replication of portfolio becomes difficult to achieve as the investment objective, investment strategy and the benchmark for each of the funds, including offshore funds, managed by local fund managers, are different.

Majority of offshore funds follow MSCI India Index as their benchmark while none of the local funds follow MSCI India Index. The composition of MSCI India Index is different as compared to local benchmarks such as Nifty, Sensex, CNX 500, BSE 100 or BSE 200.